Performance & Volatility
Last valuation date : 05-03-2020
Risk / Return from 20-04-2010
All information for an index prior to its Inception Date is back-tested, based on the methodology that was in effect on the Inception Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.
The key elements of the index methodology are available upon demand.
Natixis has developed a hedging solution for equity portfolios using VStoxx© options. Compared to volatility futures strategies, the NXS FIVO Europe Index aims at improving the reward/risk profile using convexity. Strategies using options can also help mitigate the long-term negative carry of a long volatility position.
Even optimised, a pure long VStoxx© strategy exhibits an expensive carry cost that needs to be financed. The FIVO strategy aims to finance OTM calls on VStoxx© by the premium of OTM puts on Euro STOXX 50©. It is a systematic and transparent index constructed as follows:
On a monthly basis, during the 5 days after the VStoxx© listed expiry:
- A call option on VStoxx© futures is bought with a strike at 115% of the 2nd VStoxx© futures, and
- A put option on Euro STOXX 50© is sold, targeting -5% delta on the second monthly expiry.
The notional of options purchased and sold is determined such that the strategy is self-financed, and targeting a premium of 1% per month.
VIX© and VStoxx© derivatives have been extensively used over the past years in multiple strategies: carry, long volatility, tail risk hedging. These historically popular strategies typically combine a long or short exposure with a quantitative signal driving the exposure in order to mitigate the expensive carry cost associated with a long exposure or the dramatic drawbacks experienced by a short exposure.
Within an evolving volatility environment, most of the strategies failed to deliver their objective over the long-term, mainly due to the difficulty to fool-proof a robust quantitative signal. As the liquidity of listed options on VIX© and options on VStoxx© improve, using convexity can improve the reward/risk profile of such carry or hedging strategies compared to futures strategies.